In March 1996, Yang Hyunsuk, a former member of Seo Taiji and Boys, founded YG Entertainment along with his younger brother Yang Minsuk. The company's first artist was the hip-hop trio Keep Six. When they failed to attract popularity, Yang turned his focus to the duo Jinusean and, in 1998, to the debut of 1TYM. Both were successful artists that Yang credits for bringing YG Entertainment, and the hip hop genre, into the Korean music mainstream.

In 1999, YG Entertainment's artists released a collaborative album under the name YG Family. The label followed with releases from artists such as Perry, Swi.T, Big Mama, Lexy, Gummy, and Wheesung. It also established the "YG Underground" label, which housed 45RPM and Stony Skunk. In 2001, a second YG Family album was released. Among others, it featured the 13-year-old G-Dragon, who was then a trainee.

The agency found success in both Korea and Japan with its first idol singer Se7en in 2003. Due to his success, Se7en became the company's first artist to attempt to cross over into the US music scene, though his US debut failed to gain momentum.

Following Se7en's success, YG Entertainment turned its attention to forming the its first idol group, Big Bang, in 2006. Despite an initial lukewarm reception, the group's breakthrough the following year and their consistent popularity have made them one of the biggest and most bankable boy bands in the world. Following Big Bang's success, YG Entertainment turned its attention to forming YG's first successful girl group, 2NE1, in 2009. Similarly to Seven, both groups have also conducted successful careers in Japan.

In 2010, YG Entertainment made a highly publicized move into a new building, while the old headquarters became a training facility. In the same year, the company unsuccessfully applied for listing on the stock exchange; it was suspected that this was because the company had too few active music groups and an unstable cash flow, despite an increase in earnings in 2009. Later that year, the label signed established artist Psy.

YG Entertainment went public on the KOSDAQ in 2011, and filed its first annual report in 2012, with profits of over 50%. Also in 2012, the label signed rapper and producer Tablo, leader of the hip-hop group Epik High, relaunching his career after a musical hiatus following his Stanford controversy.

2012 brought YG international recognition when Psy's "Gangnam Style'' gained worldwide popularity as a viral video. On August 21, it charted at first place on the iTunes Music Video Charts. This feat was a first for a South Korean artist. By November 24, "Gangnam Style" had become the most viewed video in YouTube history and the first video to surpass a billion views. The song was credited as the main reason for YG Entertainment's share prices increasing by more than 60 per cent.

Also in 2012, Epik High signed with YG Entertainment, following the success of its frontman Tablo under the company. Additionally, Yang Hyunsuk made his television comeback as a judge on the reality singing competition "K-pop Star," where he signed a record deal with the runner-up of the show's first season, Lee Hi. Other participants on the show were signed as potential members of the label's future boy groups. On the second season of the show, the winners, sibling duo Akdong Musician, and runner-up Bang Ye-dam were signed under the agency.

2013 saw the screening of the reality television program "WIN: Who is Next," in which two teams of male trainees competed against each other for the chance to sign a contract with the label to debut as the company's next idol group. The conclusion of the reality series saw the formation of Winner.

In 2014, YG Entertainment acquired T Entertainment's staff and actors including Cha Seungwon, Im Yejin, and Jang Hyunsung. Additionally, through the acquisition of modelling agency K-Plus, it expanded its acting division through the acting debuts of models Lee Sungkyung and Nam Joohyuk. YG also signed a contract with actress Choi Jiwoo. French luxury giant LVMH's private equity arm, L Capital Asia, later announced that it would be investing up to $80 million in YG Entertainment. Headquartered in Singapore, L Capital Asia would become the second-largest investor in YG with an 11.5% stake, second only to Yang Hyunsuk's 28%. In 2014 YG Entertainment also expanded into the beauty industry with the creation of its cosmetics brand Moonshot.

In 2015, YG Entertainment invested nearly $100 million in a new Gyeonggi-do based industrial complex which is slated to be complete by December 2018. Real estate in Seoul worth 16 billion wonwas also purchased for the purpose of expanding their headquarters. In that year, the company also saw the creation of two sub-labels, the first led by Tablo and the second headed by YG producers Teddy Park of 1TYM and Kush of Stony Skunk. Additionally, the members of the losing team from the reality series "WIN: Who is Next" regrouped and debuted as iKON, along with a new member.

Sixteen years after the group's disbandment, first-generation K-pop idol group Sechs Kies signed a contract with YG in May 2016, to relaunch their career. In the same month, Chinese technology enterprises Tencent and Weiying Technology announced an investment of $85 million in YG. Weiying took a 8.2% stake in the company and Tencent a 4.5% stake. YG later added Lee Jongsuk. Kang Dongwon, and Kim Heejung to their list of actors.

In August 2016, YG Entertainment debuted their second female idol group (following 2NE1 in 2009), the four-member Black Pink. In November 2016, YG Entertainment announced the disbandment of 2NE1 after 7 years and the departure of Nam Taehyun from Winner.

In July 2017, solo rapper One debuted under YG Entertainment, the label's first male soloist since Se7en 14 years earlier. Later that year, YG launched a talent show titled "Mix Nine," a contest between trainees from different agencies.

YG Entertainment's records are distributed by Genie Music and LOEN Entertainment in Korea, YGEX in Japan, BEC-TERO Music in Thailand, Trinity Optima Production in Indonesia, Tencent on-line in China, and WMG in the rest of Asia.

In March 2010, seven record labels in Korea (YG Entertainment, S.M. Entertainment, JYP Entertainment, Star Empire Entertainment, Medialine, CAN Entertainment, and Music Factory) jointly established KMP Holdings, a service platform aiming to provide digital music distribution and television program productions. In November 2012, KMP Holdings was acquired by KT Music. In January 2014, the seven agencies behind KMP Holdings formed a collective bond partnership and purchased 13.48% of KT Music's stocks, leaving parent company KT Corporation with 49.99%.

YGEX was established on April 12, 2011, as a partnership between AVEX and YG Entertainment for the promotion and release of all of YG Entertainment's material in Japan. Prior to this, YG Entertainment's Japanese releases had been in partnership with Nexstar Records, a Nippon Columbia label that managed Japanese releases for Se7en, and Universal Music (which signed a three-year exclusive contract in 2008 for Big Bang's Japanese releases.)

In April 2011, United Asia Management was formed as a joint talent management agency between YG Entertainment, SM Entertainment, JYP Entertainment, KeyEast, AMENT, and Star J Entertainment.

YG Entertainment first collaborated with Californian concert promotion company Live Nation to produce Big Bang's Alive Galaxy Tour (2012). Live Nation subsequently directed 2NE1's New Evolution World Tour (2012) and G-Dragon's One of a Kind World Tour (2013).

Asiana Airlines signed a deal with YG Entertainment in January 2013, providing transportation for its personnel to and from domestic and international destinations in return for advertising.

HIGHGRND ("high ground") is an independent sub-label headed by Epik High's Tablo. Announced in March 2015, the label was set up by Yang Hyunsuk under the YG Entertainment umbrella as part of a long-term goal to reach out to the Korean indie and alternative scene. On June 21, 2015, Tablo introduced the band Hyukoh via Instagram as the label's first official artist.

Following the successful formation of HIGHGRND, on September 22, 2015, YG Entertainment announced the creation of another independent sub-label, to be headed by YG Producer Teddy Park and Kush of Stony Skunk. The label currently houses Zion.T, Korea's second best-selling artist of 2015 after Big Bang. On May 3, 2017, Okasian signed an exclusive contract with The Black Label. Danny Chung (formerly known as Decipher) has also signed with The Black Label.

On September 1, 2016, representatives of YG Entertainment announced that Psy would be leading an independent sub-label titled PSYG, a portmanteau of "Psy" and "YG." The label was registered as a corporate subsidiary in June. YG's CEO had implicitly promised the creation of a sub-label when Psy had signed on to the company in 2010 amidst personal difficulties, having been encouraged by his wife to work with the YG founder.

YG PLUS Inc., previously named Phoenix Holdings Inc., is a publicly-traded media and advertisement company acquired by YG Entertainment in October 2014. Yang Minsuk was appointed as the company's CEO, with YG Entertainment owning 38.6% of the company's shares. Some of its notable clients include Coca-Cola, SK Telecom, and The Face Shop. YG PLUS currently owns 100% of YG K-Plus and YG Golf Academy, with minority shares in moonshot and NONAGON.

YG K+ is a partnership between YG Entertainment and the Korean model management company K-Plus. The merger was announced on February 18, 2014, by co-CEO Yang Minsuk. As of 2014, the K-plus model agency housed over 170 models, including Kang Seunghyun, Park Hyeongseop, Lee Sungkyung, Nam Joohyuk, and Choi Sora. Since the partnership, K-Plus models have appeared in YG recording artists' music videos as well as YG-owned brands' advertisement campaigns. YG Entertainment has also reportedly provided YG K+ models with roles in TV dramas, notably Nam Joohyuk in "Who Are You: School 2015" and Lee Sungkyung in "It's Okay, That's Love," and have formally transitioned models to their acting division.

Moonshot is a cosmetics brand launched by YG Entertainment on October 2, 2014. Developed with China's Huanya Group and in partnership with the cosmetics manufacturing company COSON, the brand is named after Apollo 11's historical landing on the moon. Its cosmetics are manufactured in South Korea and sold online as well as in-store in Samcheong, where according to Paik Hojin, an employee of the brand, Chinese shoppers account for 40-50% of the customers. As part of YG's partnership with French luxury conglomerate LVMH, Moonshot was launched at 11 Sephora stores in Singapore and at 13 Sephora stores in Malaysia on September 24, 2015.

NONA9ON is a luxury street-wear brand founded in early 2012 by YG Entertainment and Samsung’s textile subsidiary company Cheil Industries. It operates through secondary retailers and pop-up stores, such as its first pop-up at Apgujeong’s Galleria Department Store. Following its domestic success, the clothing line also quickly sold out in its first international pop-up stores in 10 Corso Como shops in Milan as well as other locations in Shanghai and Hong Kong. The brand plans to open a pop-up store at JayCo in Taiwan. It often features Bobby & B.I. from iKon and Lisa from Black Pink in commercials and promotions.

YG Sports was formed by YG Entertainment in 2015 through the acquisition of G-AD Communication, a golf agency that handles notable professional golfers such as Kim Hyojoo, Lee Dongmin, Byun Jinjae, and Yoo Goun. Leading golf coach Han Yeonhee acts as the head instructor of the academy, which aims to venture into acquisition of golf courses, scouting and nurturing of talent, hosting of golf tournaments, and retailing.

YG STUDIOPLEX is a TV drama production company established by YG Entertainment on April 2017. The studio was preceded by YG Entertainment's attempts to get involved in the content production industry, following in the footsteps of SM C&C and CJ E&M's Studio Dragon. In 2016, YG participated in a joint production with NBCUniversal by investing in SBS's "Moon Lovers: Scarlet Heart Ryeo." Since then, YG has also actively recruited program directors from various broadcasters, including Park Honggyun, who worked on MBC's "Queen Seondeok" and "The Greatest Love."

YG Entertainment pledged to donate 100 won for every album sold, 1% of all merchandise sales, and 1,000 won for every concert ticket, to charities. In 2009, they raised $141,000, and in 2010, $160,000. The company has also directly delivered $4,400 worth of charcoal to families in need during the winter. It announced that it would be donating around $500,000 for disaster relief to Japan after the 2011 Tōhoku earthquake and tsunami.

In 2013, Yang Hyunsuk donated all of the dividends he received as a shareholder of YG Entertainment (around $922,000) to help young children needing surgery.

In 2015, YG Entertainment donated a total of 100 million won to the Korean Committee for UNICEF in disaster relief following the earthquake in Nepal.